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Max Rudolph's avatar

Well thought out article, as usual. 1-Keep in mind that life insurers differ from what you described as products are designed for assets and liabilities to interact. This is true for traditional managers but PE firms manage life companies more like a P/C firm. A life insurer would not use the term float. 2-annuities and universal life products could theoretically have a run on the bank but it would be unlikely since distributors are incented to reissue the policy once the surrender charges have graded off. 3-For the insurers you describe future premiums can be viewed as an asset with cash flows that are predictable. If the cost of float is less than 1 premiums are all you need except for conservatism. This is why property insurers are able to invest so broadly. 4 - property insurers do interact with economic variables, eg, when inflation is high cars cost more to fix and cost of float exceeds 1.

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Chuck's avatar

Excellent write-up. While I own BRKB shares and model my equity investing on many of WB's principles, I have always shared his reticence to buy fixed income securities. The unusual element in the SVB matter, unlike with most banks and insurance companies, is that bank management not only mismanaged durations of assets and liabilities but also the singular nature of its customers in their dependence on one kind of funding.

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